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Inflation Types
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Cost-Push and Demand-Pull Inflation: Definitions and
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Examples
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Economists tell us that controlled inflation is a sign of economic growth. Central banks, such
as the U.S. Federal Reserve, actually set monetary policy to maintain a consistent inflation
rate of around two percent per year.
The gradually rising prices associated with inflation can be caused in two main ways: cost-
push inflation and demand-pull inflation.
Both are associated with the principles of supply and demand.
Table of contents:
What is Cost-Push Inflation?
Examples of Cost-Push Inflation
What is Demand-Pull Inflation?
Examples of Demand-Pull Inflation
Cost-Push Inflation is usually associated with an unexpected external event like a natural
disaster or the depletion of natural resources, monopoly, government regulation, government
taxation, and changes in exchange rates. Basically, any event that hinders a company’s
ability to produce enough of certain goods to keep up with consumer demand. This forces
them to raise or inflate prices.
Essentially, as the global economy opens up, individuals want to spend money, but factories
haven’t been able to meet demand as quickly. Consumers are willing to pay higher prices,
thereby, creating demand pull-inflation.
This article was originally posted on FX Empire
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